The Competition and Markets Authority (CMA) has written an open letter to alert businesses that if suppliers restrict retail prices it can break the law.
The open letter follows two recent cases in which businesses were fined a combined total of £3m for engaging in resale price maintenance (RPM), which occurs when a supplier and a retailer agree that the retailer will not resell or advertise the products below a specified price.
RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price.
Despite this, the CMA said merely setting a ‘recommended’ retail price is not against the law, provided that there are no attempts to enforce compliance with the recommended retail price.
RPM agreements are usually illegal as they can prevent retailers from being able to offer lower prices to attract customers, or to sell off surplus stock.
In the two cases earlier this year, Ultra Finishing – a supplier of bathroom fittings – and ITW – a supplier of commercial fridges – were fined for engaging in RPM by restricting retailers’ ability to sell their products online at independently determined prices.
The CMA said businesses’ understanding of RPM is low – about one third of businesses surveyed by the CMA thought it was legal to set the price at which other businesses can resell their product, with another 37% uncertain on the rules.
Only 29% correctly responded that ‘it is unlawful to set the price at which others can resell your products’.
The letter gives details of different kinds of RPM that can break the law, including the use of ‘minimum internet advertised price’ policies. It also warns that both suppliers and retailers can be fined for engaging in RPM.
It adds the internet is an ‘increasingly important channel’ for competition because it opens up markets, provides customers with more choice and enhances price competition.
Ann Pope, CMA’s senior director, said: “Price competition from online sales is usually intense, given the ease of searching on the internet. RPM, by preventing retailers from offering discounted prices, denies buyers the benefit of the lower prices and increased quality that comes from genuine competition.”